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IP Rights on Chinese Agenda

Executive Counsel
August/September 2011

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Authored by Esther H. Lim and Erik R. Puknys

We recently participated in a series of meetings involving top government and private-sector leaders from China and California. The meetings were part of a trade mission to the Shanghai region being led by then-governor of California, Arnold Schwarzenegger. The mission’s purpose was to increase cooperation between these two regions whose technological innovations drive so much of their countries’ economies.

One of the most striking aspects of the meetings was the surprise expressed by first-time visitors to China that the Chinese delegation made intellectual property rights the dominant topic. After all, China has consistently been the target of criticism from the United States, especially Hollywood, for intellectual property violations. In fact the Chinese delegation was not only open to discussing intellectual property rights, but affirmatively raised proposals for expanding and enforcing them.

To those of us who have long worked with China’s intellectual property community, it came as no surprise at all. For years China has been trying to shed its reputation as an intellectual property outlaw and to recast itself as a hotbed for innovation in the 21st century. In this respect, China joins a long line of countries—including the United States—that were notorious for intellectual property violations until they recognized that strong IP protection was necessary to protect domestic innovation and encourage foreign investment.

Sharp Growth in Patent Filings

Perhaps there is no better indicator of China’s efforts to transform its reputation than its patenting activity. In just one year, China climbed from the sixth to the fourth largest patent filer in the world under the Patent Cooperation Treaty (PCT), a vehicle for protecting inventions globally. In 2010, China’s PCT filings increased 56 percent, by far the largest rate of any country. Locally, new patent applications filed by Chinese companies in SIPO, the Chinese patent office, exceeded the one million mark.

Growth in patent filings in China shows little sign of abating. According to SIPO Commissioner Tian Lipu, "By the end of the 12th Five Year Plan (2011-2015), invention applications received by SIPO every year are expected to double over the current number."

IP has become a key part of China’s growth and its increasingly competitive standing among world economies. (China just surpassed Japan as the country with the second largest economy in the world.) Many are shocked to learn that more than 30,000 civil IP cases were filed in 2009 alone. Most cases relate to copyrights and trademarks, but there are also significant numbers of patent, technology contract, and unfair competition cases.

Patent Considerations in China

With China’s IP assets growing at unprecedented speed, companies doing business there should consider a number of basic IP strategies:

File Early. Companies doing business in China can no longer ignore procuring IP rights in China. Chinese courts are becoming friendlier to foreign patent owners, so it’s making more sense for foreign companies to obtain Chinese patents to protect their investments in research and development.

Moreover, as applications of Chinese companies mature into patents, foreign companies will become more vulnerable to charges of infringement. A robust patent portfolio is one of the best defenses against aggressive patent owners in any country, so having Chinese patents that can be asserted in a counter-suit will improve prospects of avoiding an adverse judgment. Since China is a first-to-file country, which rewards early filers, companies doing business in China would be well advised to file an application before a competitor stakes out a claim to the invention.

Focus on Quality. Not all patents are created equal. In the early stages of the development of a company or an industry, there may be emphasis on quantity over quality of patents. Even during a period of dramatic patent-filing increase, however, it is important to keep focused on quality. A patent that is not valid, or so narrow patent that does not cover a competitor’s product, may become worthless. Thus, it is important to think strategically about the invention and how to achieve strong patent protection that withstands future challenges. Focus on quality to build an effective IP war chest.

Prevent IP Loss. One can lose valuable intellectual property for several reasons. Filing too late is certainly one of them. A weak application is another. That might mean providing insufficient disclosure, or it could mean improperly claiming too little or too much.

Another reason is inaction or lack of employee oversight. Implementing sound IP procedures to maintain confidentiality of company information, including R&D information, and securing proper ownership to ensuing IP rights, are critical in developing and maintaining a valuable IP portfolio.

Preventing IP loss cannot be overemphasized in a country like China, where R&D investment continues to rise and the focus on technological advancement gives rise to fast development of intellectual property.

Avoid Infringement. As important as it is to build your own IP assets, it is equally critical to avoid infringement of the intellectual property of others. Planning should start at the earliest stages of market research and product planning.

As the pace of IP development in China escalates, so does the importance of early, strong IP protection for those doing business there. It’s become a necessity for those who want to fully participate in the explosive growth of China’s increasingly sophisticated economy.

Originally printed in Executive Counsel. Reprinted with permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.